Expedia Stock Price Tumbles on Worries Over Increased Spending

Gerrit De Vynck and Jing Cao, Bloomberg

- Feb 09, 2018 10:00 am

Skift Take

If anyone thought that the difficulties online travel agencies faced in the third quarter were an anomaly, then guess again. It might be wrong to generalize that Expedia’s issues will be Priceline’s issues, but we wouldn’t be shocked to see increased marketing costs and technology spend hanging over Priceline, too.

— Dennis Schaal

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Expedia Inc. is planning to spend a lot more in 2018, moving to modernize operations and bolster its short-term vacation rental unit to compete with nimbler startups. The shares tumbled 19 percent in extended trading.

[Skift Update: The Priceline Group’s shares were likewise down 2 percent in pre-market trading; TripAdvisor’s stock decline 2 percent, and Ctrip’s shares fell .50 percent. Some of the declines could be tied to investor sentiment that online travel stocks have a tough year ahead with increased marketing costs and technology investments.]

The company gave a forecast of 6 percent to 11 percent annual growth in earnings before interest, taxes, depreciation and amortization — a measure of profitability. That indicated a maximum of $1.9 billion, falling short of the average analyst estimate of $1.94 billion. All that Ebitda growth will come in the second half of 2018, executives said, which implies heavy spending in the first half.

Expenses rose faster than revenue in the fourth quarter, a trend Expedia said will persist this year. Some of the extra cost in 2018 will be for the company’s transition to cloud-based infrastructure: Chief Financial Officer Alan Pickerell said Expedia will spend $170 million on the cloud this year, an acceleration from 2017.

The company is also trying to stake out a larger piece of the burgeoning short-term home rental market, a key area for growth. Expedia plans to accelerate spending on sales and marketing for HomeAway, focusing on adding new rental units to the platform and spreading brand awareness. Chief Executive Officer Mark Okerstrom said investments made in HomeAway last year are starting to work, “and when they work, it allows HomeAway to start stepping on the gas in sales and marketing.”

Still, Okerstrom added, “the flip side of that, of course, is that it can put pressure on near-term profitability.” HomeAway was significantly less profitable in the fourth quarter than in the same period a year earlier.

Before the report, the shares had gained 2.7 percent this year, closing at $123.03 in New York.

Upstarts challenging the dominance of Expedia and its rival Priceline Group Inc. with mobile-only travel booking apps say the older companies are struggling to adapt to the smartphone world. While the companies still are the leaders in online booking, they’re spending money to keep up with changing consumer tastes and developments in technology.

Profit excluding certain costs was 84 cents a share in the fourth quarter, down almost 30 percent from a year earlier. Analysts estimated $1.15 a share, marking the sixth straight quarter the company missed projections. Revenue was $2.32 billion in the period, which included much of the busy holiday season. Analysts estimated $2.36 billion.

Trivago NV, which is majority controlled by Expedia, was also a drag on earnings in the fourth quarter, reporting revenue growth of 7.3 percent, a slowdown from the previous period. Trivago expects a sales decline in the first half of this year, though that should be more than offset by growth in the second half.